Mondelez International plans to close older ‘subscale’ facilities and will open five previously unannounced sites by 2020 as part of a five-step supply chain efficiency program.
The company claims its program will save it $1.5 billion in net productivity in three years and will help it increase its adjusted operating margin from around 12% today to 14.5-16.5% by the time the project is complete.
The announcement was made at the Barclays Capital Back to School Conference in Boston, Massachusetts yesterday.
The five new plants as well as previously announced factories and upgrades at existing facilities will increase Mondelez’s capacity by 28% by 2020 compared to 2012 levels.
‘Complex and fragmented’ supply chain
Daniel Myers, executive vice president, integrated supply chain at Mondelez said: “Our supply chain network today is fragmented, complex and inefficient.”
He said this came as a result of high-profile acquisitions over the last decade including Jacobs, Milka, Nabisco, Lu and Cadbury.
“A number of our 170 plants around the world are old subscale facilities that require significant ongoing investment to maintain.”
Eight plants announced; five more planned
Mondelez said that it must grow its total capacity by 25% over the next three years. It has already announced plans to build eight facilities including a biscuit factory in Mexico and Chocolate plant in Southern India , and plans a further five.
“By 2020, we expect to build another five Greenfield sites and double capacity at 16 existing strategic sites while consolidating other subscale plants and distribution centers,” said Myers.
Mondelez’s previously announced site in Mexico will become the world’s largest cookie plant when it opens in the second half of 2014. The factory will require one-third of the staff to produce the same capacity as one the firm’s older facilities.
Plant closures due?
“Now as we’re building state of the art manufacturing lines, we’re retiring the older inefficient ones,” said Myers.
In June, the company confirmed it planned to close two gum factories in Lebanon and Morocco.
Fourteen plants will become Mondelez’s main manufacturing hubs and it will roll out best practices to over 100 other facilities by 2015.
Mondelez has already begun to consolidate its global Oreo production. It will next install over 60 new production lines across its biscuit power brands as well as gum and chocolate in the next 36 months.
Slimming product portfolio
The company is also reviewing its product portfolio to closer meet consumer needs, so that it is not needlessly manufacturing low-demand goods. It is piloting this project with the biscuit category in Europe.
“Now by really zeroing in on key consumer needs we can simplify product formats, packages and recipes,” said Myers.
Part of this plan includes cutting the number of SKUs in Europe for LU biscuits from 4,000 to 2,500 by 2016. The simplification program will next move chocolate in Europe and biscuits in North America.
The company reaffirmed its 2013 guidance of 5-7% growth in organic net revenues and operating income growth in high single digits as well as double-digit adjusted earnings per share (EPS) growth, which would be between $1.55-and $1.60.